Financial Concepts

Factors to Consider when Choosing a Source of Finance

There are many sources of finance available to a business. Finance is needed for several purposes and different purposes need sources of  finance which are most suitable to them. When choosing an appropriate source of finance some factors have to  be considered. The factors that need to be considered when choosing an appropriate source of finance are:
  1. The amount of money needed: This is the amount of finance the organisation wants to raise. Not all sources of finance provide all amounts of funds. Some sources are notable to raise large amounts of funds whereas others are not flexible enough to put up for the small sum of money the business requires.
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Differences between Activity Based Costing and Activity Based Management

Activity Based Costing (ABC)

Activity Based Costing was introduced as the answer for an improved full-cost product-cost calculation as the model grew into a more full-fledged costing system for hierarchies of activities and cost objects. Activity Based Costing is a two-stage procedure where cost of resources in the first stage are allocated to activities to construct Activity Cost Pools, which in second stage are allocated to cost objects based on these objects’ use of the different activities. It is also a tool for cost and performance measurement towards activities, resources and cost objects (for example products and services). Activity Based Costing is knows as a “horizontal” or cross-functional cost view and it can provide fact-based insight into the spending and profitability of products, services and customers.… Read the rest

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Decision Making Conditions

There are different conditions in which decisions are made. Managers sometimes have an almost perfect understanding of conditions surrounding a decision, but in other situations they may have little information about those conditions. So, the decision maker must know the conditions under which decisions are to be made. Generally, the decision maker makes decision under the condition of certainty, risk and uncertainty.

1. Certainty

Certainty is a condition under which the manager is well informed about possible alternatives and their outcomes. There is only one outcome for each choice. When the outcomes are known and their consequences are certain, the problem of decision is to compute the optimum outcome.… Read the rest

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Factors Influencing Dividend Payouts of a Company

Dividend  is a form of payment made to shareholders by an organization; It’s a profit which is paid out to the company shareholders. When a profit is earned by the company, the profits are used again to invest for a better growth of the company for its future, or it can also be paid to the company shareholders in the form of dividends. Dividends are also paid to the shareholders in the form of cash or shares. The company must have sufficient funds in order to pay dividends to its shareholders. Dividends are generally paid out by a company only when the company make good profit and it’s been paid form its earnings.… Read the rest

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Incremental Cash Flow Analysis

The most important and also the most difficult part of an investment analysis is to calculate the  cash flow associated with the project; the cost of funding the project; the cash inflow during  the life of the project; and the terminal, or ending value of the project. Shareholders are  interested in how many additional rupees they will receive in future for the rupees they lay out  today. Hence, what matters is not the project’s total cash flow per period, but the incremental  cash flow for a variety of reasons. They include;

  • Cannibalization: When a new product is introduced it may take away the sales of existing  products.
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Similarities Between Financial and Management Accounting

Financial accounting and management accounting play an important part in accounting information system. They co-exist in enterprise production and operation of management, constituting the modern enterprise accounting system together. Much information which management accounting required is from financial accounting, while financial accounting also put the established budget, standards organizations, and such daily accounting data from management accounting as the basic premise.

Financial accounting focuses on external services, but internal services is also included. Information which financial accounting provided on the funding, costs, profits and other information is very important for business management. In particular, financial statements can comprehensive and reflect all aspects of enterprise’s financial position and operating results.… Read the rest

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